20 November 2011

Will oil drown the Arab spring?

A recent article by Michael L. Ross talks about how oil money may yet destroy the democratic gains of the Arab Spring:

Oil has not always been a barrier to democracy. Until the early 1970s, oil—producing countries were no less likely to be democratic than any other state. Ironically, this was because until that point, the so-called Seven Sisters, a handful of giant Western oil companies, dominated the global oil industry and collected most of its profits.

Then the Arab-Israeli war happened, and:

Eager to capture the resulting windfalls, virtually all developing countries expropriated the foreign oil companies operating on their soil. These nationalizations brought with them massive influxes of new wealth and so were hugely popular; they made the careers of many politicians.

The reason being:

Since then, control over oil revenue has helped autocrats stay in power in three main ways. First, it has allowed them to buy off citizens by providing them with many benefits and virtually no taxation.

For example, Saudi Arabia offers universal healthcare. It manages to do so without the kind of taxation required in European countries. This was pointed out to me by a libertarian expat in Saudi Arabia. I noted that the economy of Saudi Arabia probably wouldn’t be sustainable once the oil ran out in a few decades. (Nevermind the irony of a libertarian apparently proposing a socialized oil industry.)

But it’s worse than that:

Second, petroleum—based autocrats use their national oil companies to cloak their countries’ finances. Secrecy helps give oil wealth its democracy-repelling powers: citizens are satisfied with low taxes and seemingly generous benefits only when they do not realize how much of their country’s wealth is being lost to theft, corruption, and incompetence.